doe office of indian energy key concepts...• calculates present value of the total cost of –...
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DOE OFFICE OF INDIAN ENERGY
Key Concepts Narrowing project options, selection, ownership through pros and cons
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LEVELIZED COST OF ENERGY
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Key Concept: Levelized Cost of Energy (LCOE)
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• Measures lifetime costs divided by energy production, captured in $/MWh or ¢/kWh
• Calculates present value of the total cost of – Building – Operating a power plant over an assumed lifetime
• Allows the comparison of different technologies (e.g., wind, solar, natural gas) of – Unequal life spans – Project size – Different capital cost – Risk, return, and capacities
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Adapted from European Wind Energy Association, “Economics of Wind Energy,” http://www.ewea.org/fileadmin/ewea_documents/documents/00_POLICY_document/Economics_of_Wind_Energy__March_2009_.pdf
Annual Expenses Including Fuel (if Diesel) and O&M Initial Costs Less
Grants Plus Financing
Energy System
Total Cost Per Year Annual
Energy Production
LCOE ($/kWh)
× $$$ Site
Characteristics/ Resources
$
LCOE Concept
4
kWh
& D
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LCOE for Wind Energy in Alaska
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A wide range of estimated wind LCOE for a variety of wind turbine types utilized In Alaska:
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Cost of Energy Analysis
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TRIBAL ROLES
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Potential Team Members
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• Village Members Leadership, staff, community members Attorneys, engineers, professionals
• Developer Business managers, engineers, permitting specialists, investors, banks,
attorneys, accountants, power marketers, procurement specialists, communications, public relations, government relations, corporate finance, project finance, construction managers, O&M specialists, asset managers, etc.
• Utility Engineers, attorneys, planning specialists, operations specialists, regulatory
specialists, finance, accounting, public relations, communications, systems operators, construction and field personnel, maintenance and emergency operations, etc.
• Government Village government, federal, state, local entities, regulating bodies (public
utilities commission), Bureau of Indian Affairs, DOE, Federal Energy Regulatory Commission, etc.
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The Role of the Project Champion
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Project Champion
Employ relevant expertise: legal and
finance; technical and construction;
power marketing
Ensure all relevant players are engaged in the project at the right time,
levels, and roles
Engage Village leadership and project and
business management (professionals
and staff)
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Village
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Village Role Options
Renewable Resource/Land
Owner/Land Lessor*
Off-taker or Energy User
Lender/ Debt Provider
Equity Investor/
Generation Equipment
Owner
Project Developer
Project Operator/O&M
* Also called Tribal Host
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1 Potential
3 Refinement
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Operations & Maintenance
2 Options
4 Implementation
3 Refinement
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INTERCONNECTION
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What is Interconnection?
“The technical rules and procedures allowing customers to ‘plug in’ to the grid.” Source: Solar Energy Industry Association. Issues and Policies: Net Metering, accessed Aug 11, 2013. http://www.seia.org/policy/distributed-solar/net-metering
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What is Interconnection?
“The technical rules and procedures allowing customers to ‘plug in’ to the grid.” Source: Solar Energy Industry Association. Issues and Policies: Net Metering, accessed Aug 11, 2013. http://www.seia.org/policy/distributed-solar/net-metering
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What is Interconnection? (cont.) • Agreement required to connect your facility-
or community-scale system to the grid • Distribution-level interconnection is largely
the domain of state policy – Rules and regulations are highly variable
between states • Involve your utility early and often in the
project development process – Many utilities have their interconnection
procedures and the necessary contacts posted on their website
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Common Interconnection Elements • Application • Designated interconnection utility
representative • Generator size thresholds
– Different tracks for generators of certain sizes – Fast-track procedure for systems smaller than a
certain size (generally ~2 MW) – Technical screens, feasibility studies, etc., for larger,
more complex systems • Timelines for each step • Standard agreement between utility and
customer
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INTERCONNECTION AND NET METERING
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What is Net Metering?
“Net metering allows residential and commercial customers who generate their own electricity from [eligible technologies] to feed electricity they do not use back into the grid” for utility credit. Source: Solar Energy Industry Association. Issues and Policies: Net Metering, accessed Aug 11, 2013. http://www.seia.org/policy/distributed-solar/net-metering
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Interconnection & Net Metering
• Required Agreements • General Process for Interconnection • How to Find Utility Rules on Interconnection • Common Missteps and Caveats
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Net Metering Variations • Net metering works best for
– Home owners (not renters) – Single dwellings (not multi-unit homes/businesses) – Customers located in same utility territory – Distributed generation (DG) located in the same
utility territory • Variations on net metering allow for broader
participation – Group billing – Virtual net metering – Joint ownership
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Virtual Net Metering • Similar to group billing
– Multiple participants receive net metering credits from a single renewable system
– Offsets load at multiple retail electric accounts – Must be within a utility’s service territory
• As with traditional net metering, credits appear on each individual customer’s bill, instead of on a group bill
• Sometimes, the DG system is not required to be behind the customer’s meter
• Examples: Colorado, Delaware, Massachusetts, and California
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Group Billing • Allows multiple participants to receive net metering
credits from a single renewable energy facility – Great for multi-family homes or multi-tenant business
buildings – Utility’s rules must allow for group billing
• Utility plays an active role – Produces group bill for all energy consumption and charges – Output from net metered system is credited against group bill – Remaining costs are allocated according to participant
agreement • Requires
– Customer representative as utility contact to do administrative work
– Creditworthy customer representative • Example: Vermont
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What is Interconnection? (cont.) • Agreement required to connect your facility-
or community-scale system to the grid • Distribution-level interconnection is largely
the domain of state policy – Rules and regulations are highly variable
between states • Involve your utility early and often in the
project development process – Many utilities have their interconnection
procedures and the necessary contacts posted on their website
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Common Interconnection Elements • Application • Designated interconnection utility
representative • Generator size thresholds
– Different tracks for generators of certain sizes – Fast-track procedure for systems smaller than a
certain size (generally ~2 MW) – Technical screens, feasibility studies, etc., for larger,
more complex systems • Timelines for each step • Standard agreement between utility and
customer
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PROCUREMENT
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Procurement Process
Facility- and Community-Scale Projects
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Negotiate Contracts
Make Selection
Develop and Issue RFP
• Potential Project Partners to Procure – Consider the General Services Administration (GSA) as a
resource for procurement: http://www.gsa.gov/portal/category/20998
– Project developer – Engineering, procurement, and construction (EPC) contractor – Environmental permits contractor
• May apply to some community projects, but not to others
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Outline of the RFP Process 1. Develop RFP
― Timeline: 1 month to 1 year (depends on project scale and site complexity)
― Who creates the RFP: project leader, contract officer/lawyer, site manager(s), energy manager and technology expert. RFP writers will receive input from utility, tribal leaders, and stakeholders
― RFP content
2. Issue RFP
Tribal, federal, and industry networks
3. Administer the RFP ― Proposal meeting(s) ― Site tour(s) – can be concurrent with proposal meeting ― Q&A process – ensure all developers get same information
4. Evaluate Criteria ― Should be a clear process with well defined criteria ― Evaluation panel recommended to consist of an odd number of members (typically 3 to 7)
5. Award Contract
― Four approaches
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Develop RFP
Key Elements of the RFP • Type of procurement
― Purchase ― Power Purchase Agreement (PPA) ― ESCO
• Technical specification (scope of work) • Criteria for evaluating proposals: 3–5 of most important project
aspects ― Proposed project solution that meets specified criteria ― System performance guarantee ― Developer experience, track record, and customer satisfaction ― Developer financial health/longevity ― Maintenance plan ― Reasonable timelines ― Other
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Develop RFP (continued) Key Elements of the RFP
• Description of RFP administration process ― Typically 2–5 months ― Key dates: proposal meeting(s), sites visit(s), proposal due date ― Description of how questions will be handled and answered
• Defining responsible parties ― Who is responsible for permits ― Who is responsible for interconnection agreements ― Who is responsible for applying for incentives
• Any preferences on parties allowed to submit proposals ― Small business ― Minority-owned ― Other
• Land use agreements ― Address site access and land use issues as relevant to ownership model
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RFP Evaluation Criteria Two Typical Approaches • Best value:
― Typically 3–5 criteria with weighting based on importance
― Score proposal on each criteria
― Somewhat subjective and can lead to contentious, time-consuming evaluations but good method to capture best value
• Low price, technically acceptable ― Proposals initially stripped of pricing/cost information
― First evaluation determines proposals that meet technical hurdle
― Technically acceptable proposal with lowest cost gets award
― More transparent process but may not capture best value
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BUSINESS STRUCTURES AND BONDS
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Business Structure Options for Tribes • Tribal government
entities – Unincorporated
instrumentalities – Political subdivisions
• Section 17 corporations
• Tribally chartered corporations
• State law entities – State law corporations – Limited liability companies
(LLCs)
• Joint venture
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NREL Photo #07958
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Business Structure: Tribal Government Entities Option 1: Unincorporated Instrumentalities
Advantages
• Easy to form
• Management is centralized
• Not subject to federal income tax
• Same privileges and immunities as tribal government
Disadvantages
• Politics and business are not separated
• Assets and liabilities of the enterprise not separated from governmental assets
• May preclude equity ownership by outside investors
Option 2: Political Subdivisions
Advantages
• Exempt from federal income tax
• Retain sovereign immunity
• May issue tax-exempt bonds
• Ability to form a corporate board
Disadvantages
• Timely and costly to form the entity
• Not as much flexibility as corporations and LLCs
• May deter certain business partners
Source: Office of Indian Energy & Economic Development 2008
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Business Structure: Section 17 Corporations Tribes can form corporations under Section 17 of the Indian Reorganization Act of 1934
Advantages
• Same privileges and immunity as the tribal government, including tribal sovereign immunity
• Separates the assets and liability of the corporation from tribal asset
• Not subject to federal income tax
Disadvantages
• Lengthy timeline to obtain a corporate charter
• Corporation must be wholly owned by a Tribe
• Example of Section 17 Corp: S&K Technologies, Inc. – Environmental restoration – Stream channel reconstruction – Native plant re-vegetation – Civil construction
Tour of the Ponnequin Wind Farm. Photo by NREL 09827
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Business Structure: Tribally Chartered Corporations
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Rooftop PV installation on the Forest Country Potawatomi Tribe administration building. Photo from Forest County Potawatomi Tribe, NREL 20107
• Formed by tribal ordinance or tribal corporation code
• Must select a name and draft articles of incorporation
• Best utilized to operate on reservation as an arm of the tribal government
• Example: Ho-Chunk, Inc. – Information technology – Construction – Government contracting
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Business Structure: State Law Entities
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State Law Corporations and LLCs Advantages
• Quick and easy to organize
• Familiar to lenders and potential business partners
• Can be used to acquire or merge with an existing state-law entity
Disadvantages
• Subject to federal income tax
• May not issue tax-exempt debt
Weather Dancer 1 wind project in Alberta, Canada. Photo from Piikuni Utilities Corporation, NREL 13792
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Business Structure: Joint Venture – LLCs or Limited Partnerships
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NREL Photo #18691
Advantages • Acquire energy project development
expertise
• Secure project financing
• Enjoy benefits of federal incentives (e.g., tax credits)
Disadvantages • Likely loss of sovereign immunity for
the joint venture entity
• Inability to qualify for certain kinds of financing 7.1 kilowatts of residential solar PV
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Bonds: Clean Renewable Energy Bonds (CREBs)
• CREBs – Apply to the IRS for an allocation – Federal tax credit to bond owner in lieu of interest payment
from bond issuer – May be more attractive than tax-exempt municipal bonds
• Issuer only pays back bond principal (for most part)
• Total allocation of $1.2 B – Up to 62.5% for public sector projects (rest: coops) – Round 1: 401 of 610 public sector PV projects – Round 2: $262MM for public-sector PV projects – Additional rounds possible
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Bonds: CREBs cont. Challenges • Not truly equivalent to interest-free bond
– Assumes bond issuer is equiv. to AA corporate – Public entities with weaker credit must either:
• Make supplemental interest payments, or • Sell the bond at a discount
• Transaction costs are high – Allocations made from smallest to largest projects – Solution: MA bundled 12 projects (1 MW)
• First principal payment due in December of the year the CREB is issued
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Bonds: Green Bonds
• Finance tool for green projects: projects and activities that promote climate and other environmentally sustainable purposes – Renewable energy – Energy efficiency – Sustainable waste management – Clean transportation
• Nascent market for institutional investors who have climate considerations in their investment objectives – Currently led by international organizations (World Bank,
International Monetary Fund) – Some states beginning to look at these instruments (MA has
issued some green bonds)
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